Travel defies currency dive
The Australian dollar is in the doldrums, hitting a five and a half year low in diabolical fashion. After blazing at well over US$1 for years, the light started to flicker late last year and blew out last month, flat lining at US$0.77. And rumours are mounting that the worst is yet to come. The nose dive quickly ignited concerns about the flow on effects, with leisure travel singled out as one of the first on the chopping block.
Flight Centre managing director Graham Turner has been outspoken on assumptions that travel trends are married to the performance of the Australian dollar, insisting that consumer confidence holds the power. While the Australian dollar will continue to run its own course, he asserts that Australians will take cheaper holidays rather pull the pin on their travel plans. “We believe that currency in itself is not a critical driver of Australian outbound travel,” he announced at the group’s annual meeting late last year.
But new research shows that he’s on the money.
Between the Lines
The Travel and Tourism Research report compiled by Bell Potter Securities senior research analyst John O’Shea found that outbound travel has won over the wallets of Australian travellers, with international travel growing at a compound rate of 13% per annum over the last eight years compared to just 4% for domestic.
The report put the shift towards outbound travel down to the strong Australian economy, lower ticket prices and the rise of discount carriers. But notably, it found that international holiday travel expenditure has grown at nearly double the rate of household disposable income over the same period.
As to be expected, travel trends fluctuated over the eight year period and there was a pronounced slump as the world rode the turbulence of the global financial crisis. But spending on holiday travel as a percentage of household income sat at a virtual standstill, with Australians spending around 6.5% of their household disposable income on holidays.
Presenting the figures at the ITG conference in Hawaii late last year, O’Shea explained that the data – compiled by comparing ABS statistics with Tourism Australia figures – showed that Australians will continue to travel overseas regardless of external factors.
“As long as our economy continues to perform, consumer confidence will remain buoyant and the travel industry will keep riding a high,” he said.
Speaking to travelBulletin in more detail, O’Shea said the figures dispelled the myths that currency and the price of travel were holding the reins of the travel industry and confirmed what many have long suspected; that Australians love to travel.
“Many have considered currency to be the most important driver of outbound travel, but it is in fact household expenditure. Despite the GFC and market volatility people are still making the choice to holiday,” he said.
O’Shea noted that outbound travel had slowed over the past 12 months as consumer confidence weakened, but travel trends had no correlation to how the Australian dollar performed.
“Currency is a driver but not the most important one, with the household sector holding all the cards,” he told travelBulletin.
The research is also a beacon of light for travel agents, with the outbound industry “almost certain” to remain buoyant regardless of external factors, O’Shea added.
“I can categorically say that an increasing percentage of consumers’ income is being poured into outbound travel regardless of economic circumstances which is positive for travel agents as this represents their most important market. It’s not just my view, it’s the facts,” he said.
A bit of perspective
It’s a bold claim, and one that’s echoed by AFTA ceo Jayson Westbury who says the data is a clear reflection of the habits of Australian travellers. And he is confident the trend will continue. “It underpins what I’ve been saying; that there is a strong future for travel agents and as long as Australians feel secure, they will continue to travel,” he told travelBulletin.
Westbury brushed off any notion that the exchange rate could deter Australian travellers from putting money on the bottom line, branding the currency conversion conversation as a “play thing of bored consumer journalists”.
“When the dollar went parity we had journalists making a bit thing of it, but we’ve had robust years when the dollar was at US$0.70… I doubt we’ll see anything hit hard with the weakening dollar,” he said.
He also dismissed suggestions that the struggling dollar would prompt Australians to holiday closer to home, insisting that international travel remains king for Australian travellers.
“I don’t subscribe to the idea that domestic travel will go up. When the dollar went to parity everyone said domestic would shut down, but I don’t believe that one swaps the other… when travellers walk into an agency they’ve already made up their mind on the type of holiday they’re after,” he said.
Domestic tour operators are singing a different tune, with AAT Kings managing director telling travelBulletin that 2015 is shaping up to be the “best year for domestic holidays in years”. APT also confirmed a “renewed interest” in domestic travel this year, and Infinity’s Australia & New Zealand area leader Steve Paterson reported “healthy” forward bookings for Queensland and the Northern Territory in particular. However, he added that currency fluctuations don’t always play on the minds of Australian travellers who are more interested in the type of experiences they’re after.
But O’Shea said a domestic boom is unlikely in the near future, with data suggesting a structural shift towards outbound is likely to be a permanent fixture in the Australian travel landscape. “The ducks are lining up in terms of outbound travel which provides a powerful backdrop for agents,” he said, adding that the high price point and lack of new hotel developments in Australia made overseas travel a “no brainer” for Aussie travellers.
What’s in it for agents
The faceoff between domestic and international travel will no doubt go on, but of particular interest for agents is O’Shea’s musings on the future for travel agents. And in his view, bricks and mortar outlets are likely to benefit from the ongoing shift towards international travel.
Delivering his speech to the ITG conference, O’Shea noted that bricks and mortar agencies remain the key source for airline ticket sales, comprising 44% of the market followed by direct sales at 22%, corporate travel agents at 20% and OTAs at 14%. But outbound airline ticket sales are where the money is for bricks and mortar outlets, claiming a massive 65% of international airline ticket sales followed by direct bookings at a much leaner 16% and OTAs at 11%. “Agents have an ideal opportunity to benefit from the seismic shift to outbound which is a trend we expect to continue,” he said.
O’Shea also touched on the emergence of OTAs, branding them a “clear threat” for traditional agencies as travellers become more savvy in the travel space. But he insisted that online travel sales were only gaining modest ground on bricks and mortar and still formed a “relatively small” part of the market.
“Future growth is likely to come from the flash site and special deals segment, but bricks and mortar travel agents remain the largest share of the flights segment,” he said. However, O’Shea stressed the need for agents to adapt their practices to fend off the competition: “Agents need to be ahead of the game and provide value-add to clients given that internet savvy customers are everywhere. They need to be more than just order takers because customers can do that, and more, on the internet.”
The idea is not new to travel agents who are hyper aware of the need to bring something different to the table. But O’Shea says the key is to pursue younger customers with features and services that are beyond their reach to reel them in, and keep them coming back.
“There is a great opportunity for bricks and mortar agents to grow – that’s supported by facts – but they need to prove their value above and beyond online resources and improve the customer experience,” he said.
Westbury agrees, but says the message has been in the pipeline for a few years. Certainly agents are feeling the pressure of online and hitting the drawing board to look at new ways to market their services to clients, but is unlikely to change.
In Westbury’s view, a more pressing consideration for agents is to be prepared when consumers voice their concerns over the exchange rate. The reality is that big ticket items such as cruise and air are unlikely to shift much with currency fluctuation, but consumers are easily swayed by mainstream media which often inflates the currency discussion. “The chances are that consumers will voice concerns over the exchange rate, so agents should have a conversation ready to go and have something prepared,” he said.